0-  \ 


/■ 


THE   BRITISH   CREDIT    SYSTEM. 


V  INFLATED  BANK  CREDIT 


AS  A  SUBSTITUTE  FOU 


"CURRENT  MONEY  OF  THE  REALM." 


THE  WAY  "TO  PAY  DEBTS  WITHOUT  MONEYS." 

AND  TO  MAKE  "THE  RICH  RICHER 

AND  THE  POOR  POORER." 


BY 

HEKRY  CAREY  BAIRD. 


P  IT  I  L  A  D  E  L  P  II  I  A: 
riENEY     CAREY    BATHD    &    CO., 

INDUSTRIAL  PUHLISHERS,  BOOKSELLERS,  AND  IMPORTERS, 
810  WALNUT  STREET. 

1875. 


BANK   INFLATION   IN   ENGLAND. 


-     From  the  Puilabelphia  Piiehs,  March  15,  1875. 

To  the,  Editor  oj  the  Press : — 

The  entire  stock  in  trade  of  the  American  bullionist,  the  thing  with 
which  he  frigl)lciis  people  who  are  wholly  ignorant  of  finance,  the  means 
he  uses  to  perpetuate  his  power  as  the  great  middlenuui,  the  parasite 
jjar  excellence  as  a  dealer  in  credit,  is  "Inflation."  The  only  inflation, 
however,  which  he  pretends  to  see  himself,  or  wishes  otliers  to  see,  is 
that  of  the  little  monetary  instrument — the  circulating  note,  the  peo- 
ple's rivuiet  that  irrigates  the  whole  land,  and  brings  peace  and  pros- 
perity in  rills  to  all  classes,  rich  and  poor  alike,  and  with  these  results, 
power  to  the  State.  He  wholly  ignores  inflation  of  the  great  monetary 
instrument,  bank  and  other  credit,  the  Mississippi  of  currency,  an  infe- 
rior substitute  which  men  are  forced  to  use  when  the  law  places  an 
arbitrary  limit  upon  the  one  of  superior  quality,  the  "current  money 
of  the  realm." 

In  no  other  country  in  the  world  has  the  bullionist  held  such  supreme 
control  during  half  a  century  as  in  England,  in  none  other  has  he  as  a 
credit  monger  so  nicely  "feathered  his  nest"  at  the  expense  of  the  peo- 
ple; in  none  other  is  the  yawning  gulf  which  divides  rich  and  poor 
more  steadily  widening,  and  the  most  potent  instrumentality  in  pro- 
ducing this  state  of  afl'airs  has  been  the  contraction  of  the  volume  of  the 
little  monetary  instrument,  "  the  current  money  of  the  realm,"  and  the 
inflation  of  the  great  m^onetary  instrument,  bank  credit.  How  this 
great  middleman  interest  is  worked,  what  imnien;^e  power  it  wields,  and 
what  profits  4t  realizes  from  insignificant  means,  are  clearly  shown  by 
the  statement  of  The  London  and  County  Banking  Company,  of 
London,  December  31,  1814  : — 

That  institution  had  a  capital  of          ....         £1,200,000 
llesecve 600,000 


£1,800,000 
But  its  loans  were  as  follows  : — 

On  call £3,050,922 

Discounted  bills  and  advances      .         .         .         .         .  14,113,465 

Drafts  accepted 2,780,005 

£19,944,392 


What  a  grand  sj'stcni  of  "inflation"!  An  irresponsible  jn'ivate 
institution,  witli  £1,800,000  of  capital  and  reserve,  addint?  £19, 944, 392 
to  tlie  purchasinc^  power  of  those  who  borrowed  its  credit,  precisely  as 
much  so  as  would  an  addition  of  £19,944,302  to  the  circulating:  medium 
of  the  country  add  to  the  purchasing  power  of  the  whole  people  I  But 
this  was  not  all.  This  institution  held  cash  on  hand  to  the  amount  of 
£2,4(51,448,  being  almost  equal  to  tlie  full  amount  of  its  ca[)ital,  reserve 
undivided  profits,  and  subscriptions  paid  on  account  of  new  shares.  Still 
further,  it  held  government  and  other  stocks  and  securities,  and  real 
estate  to  the  amount  of  £2,506,547. 

Now  how  have  these  results,  as  magical  as  those  which  came  from 
Aladdin's  hunp,  been  acconi|)lished  ?  Why,  by  lending  an  ever-incrensing 
volume  of  credit,  which  is  l)ased  on  a  fixed  sum  of  money  or  credit  called 
capital,  and  receiving  it,  orthat  of  similar  English  banks,  in  deposits,  in  the 
aggregate  amounting  to  the  almost  unparalleled  sum  of  £19,892,586, 
which  deposits  are,  by  means  of  checks  and  the  clearing-house,  kept 
floating  round  in  a  circle  among  these  banks — the  balances  between  the 
banks  being  settled  without  the  use  of  a  single  jiound  sterling  of  money, 
but  by  checks  on  the  Bank  of  England.*  Be  it  reineral)ered,  too,  that 
this  London  and  County  Banking  Company  has  no  circulation  of  its 
own,  but, that  where  it  does  use  notes  they  are  those  of  the  Bank  of 
England. 

The  result  of  the  business  of  the  bank  for  the  past  year,  after  paying 
large  salaries  and  other  expenses,  was  dividends  amounting  to  20  i)er 
cent.,  that  too,  in  a  land  where  the  public  fund-holder  is  content  with  a 
trifle  over  3  jier  cent.,  and  the  small  depositor  in  the  Postal  Savings 
Bank  with  2^-  })er  cent. 

Is  it  not  high  time  that  the  British  government  ceased  to  limit  the 
volume  of  the  "current  money  of  the  realm,"  and  thus  to  legislate  in 
the  interest  of  such  a  set  of  vampires  as  the  London  and  County  Banking 
Co.  ?  The  English  reformers  have  now  been  at  work  for  half  a  century, 
and  they  have  really  accomplished  nothing  of  material  advantage  to  the 

*  To  show  liow  very  small  an  ainoiint  of  banking  deposits  aro  made  in  the 
foi'm  of  money  we  pivo  liie  following  statenuint,  made  by  .Sir  John  Lnhbock 
before  the  .Statistical  Society  in  June,  ISiif),  in  whiidi  he  analyzed  a  sum  of 
i;ii),UOO,OUO  paid  into  his  baulc  by  curttomers  : — 

Checks  and  bills    ......  £1 8,395,000  or  tJT  per  cent. 

Uank  of  England  notes  ....  408,000  i 

Country  notes          .....  7n,liOO  ^        3  per  cent. 

Coin 118,000  J 

From  which  statement  it  appears  that  only  3  per  cent,  of  banking  deposits 
are  paid  in  the  foi'm  of  money,  tliat  is,  noles  and  coin  ti'gether,  an.l  a  little 
more  than  .'.  per  cent,  iu  specie. — i'aUersuu^s  Science  of  Finance ^  pp.  5,  G; 
Edinburgh,  18US. 


))CO))lo.     Lot  t'.iam  concentrate  their  whole  eifort  npoii  monetary  reform. 
Lei  them  demand  that  current  money  of  the  realm  shall  take  the  place 
now  held  by  an  inHated  bank  credit,  and  they  will  find  that  the  power  of 
the  peoj>le  over  the  accnmnlations  of  the  past  will  soon  show  itself,  and 
will  bless  and  prosjjor  the  many  instead  of  the  f(!W,  as  at  iircKont. 

The  great,  insolvablo  problem  of  the  jaiblic  debt  of  Great  Britain 
awaits  ill  the  near  future  an  easy  solution.  Let  the  goverument  t;d\0 
from  the  Bank  of  England  and  all  other  banks  the  right  to  issue  circu- 
lating notes,  and  issue  them  itself  jn  exchange  for  consols,  allowing  the 
people  full  liberty  to  decide  upon  the  volume  of  such  notes,  and  making 
them  at  all  times  interconvertible  with  consols.  These  notes  will  take 
the  jilace  of  mere  unsubstantial  bank  credit,  and  flowing  out  among  the 
people  will  disseminate  the  force  now  centralized  in  the  hands  of  a  few 
bank  officers,  stockholders,  and  borrowers,  and  enable  the  people,  the  real 
source  of  national  wealth  and  power,  to  contribute  almost  immediately,  at 
least  as  much  toward  the  payment  of  the  public  debt  asthey  did  from  1810 
to  18:^2,  before  resumption  of  specie  ])ayments,  or  £16,000,000  per  annum  ; 
besides  which  the  debt  will  certainly  be  carried  at  2  per  cent,  per  annum 
interest,  instead  of  3  per  cent.,  and  this  alone  will  rapidly  lighten  its 
burden.*  Li  addition  to  all  of  these  advantages  credit,  misnamed  "financial 
crises,"  will  soon  be  a  thing  of  the  past,  and  the  great  body  of  the  people 
of  Groat  Britain  will  clearly  see,  as  many  do  now  among  us,  that  "in 
the  interchangeability  (at  the  option  of  the  holder)  of  national  paper 
money  with  government  bonds  bearing  a  fixed  rate  of  interest,  there  is 
a  subtle  principle  that  will  regulate  the  movements  of  finance  and  com- 
merce as  accurately  as  the  nujtion  of  the  steam-engine  is  regulated  by 
its  '  governor.'  Such  paper-money  tokens  would  be  much  nearer  perfect 
standards  of  payment  than  gold  and  silver  ever  have  been  or  can  be.'' 
That  all  of  these  things  will  come  to  i)ass,  and  even  in  Great  Britain,  in 
the  not  very  distant  future,  and  that  they  will  finally  and  forever  drive 
pauperism  from  those  islands,  is  my  firm  conviction. 

HENRY  CAREY  BAIRD 


*  The  public  debt  of  Great  Britain  is^^ow  £779,283,245  =  $3,787,31G,570,  aud 
loiisequenily  a  iciluction  of  1  per  cent,  per  unmiin  iiitere.st  would  give  an  im- 
uediiite  annual  relief  of  $37,873,1  G.').  In  lilty  .ve.ir.-*,  however,  there  would  be  a 
laving  to  tlie  people  and  tin?  Htate  of  $(5,40!), (.154, 51)3,  l)e!ng  the  difference  be- 
vveen  !<1(!, 003,217, 111,  the  amount  of  the  debt  at  the  expiration  of  that  time. 
It  compound  interest,  at  3  per  cent.,  and  §10,193,51)2,548,  its  amount  at  2  per 


CAPITAL  AND  CURRENCY. 

Including  an  atlcmi-)t  to  show  irluif  if  is  that  England  loans  and 
what  our  Government  and  Iiailroads  borrow  from  her. 

[a  REjni^xnr)  ccisi.iii'Mf'.VTiuN.] 


To  the  Editors  ofllic  Bodon  Daibj  Adcrrlincr: — 

Permit- nic  to  ask  the  favor  that  you  will  allow  me  to  make  a  critical 
examination  of  an  important  Hcntcnco  in  the  rejoinder  of  "  W.  E.-'  to 
Mr.  Wendell  Phillips  on  "Ca))ital  and  Currency,"  in  your  pa[)er  of  the 
18th  inst.     The  sentence  is  as  follows: — 

"I  said,"  says  W.  E.,  "that,  in  order  to  make  the  rale  of  interest, 
permanently  lower  in  this  country,  it  would  l)c  necessary  to  make  llie 
supi)ly  of  loanable  capital  larger  than  it  now  is,  rvlalivchj  to  the  demand 
for  it,  and  that  this  could  be  done  only  by  borrowing  abroad,  or  by  slow 
accumulation  at  home — in  short,  that  capital,  and  not  currency,  w;is 
the  thing  needed  to  satisfy  Mr.  Phillips's  desire,  and  that  capital  could 
not  be  created  by  any  act  of  legislation." 

The  question  which  meets  us  at  the  very  threshold  of  this  investiga- 
tion, and  demands  an  answer,  is,  What  in  capital?-  Without  this  an- 
swer, and,  in  addition,  an  analysis  of  that  which  W.  E.  calls  "  loanable 
capital,"  \vc  shall  remaiii  in  ignorance  as  well  of  the  nature  of  our  con- 
clusions as  of  our  premises ;  we  shall,  indeed,  not  know  what  it  is  that 
we  are  talking  about. 

Capital  has  been  defined  by  an  eminent  American  economist  as  "  the 
instrument  by  the  aid  of  which  jjroduction  is  directed  to  the  uses  of 
man,"  and  oxists,  as  he  adds,  in  the  form  of  land  and  its  improvements, 
ships,  ploughs,  mental  development,  books,  corn,  roads,  steam  engines, 
money,  and  that  confidence  between  man  and  man  which  is  known  as 
credit.  This  latter  has  been  characterized  by  a  very  acute  and  able 
Scotch  economist,  R.  11.  Patterson,  as  "our  invisil)le  capital."  Let  us 
now  inquire  what  is  the  "loanable  caiiital"  to  which  W.  E.  refers,  and 
the  supply  of  which  may,  as  he  thinks,  be  increased  "only  by  l;orrowing 
abroad  or  by  slow  accumulation  at  home ;"  and  sec  if  it  is  not  mere 
credit,  the  "invisible  capital"  of  Mr.  Patterson.  Let  us  trace  out  the 
manner  of  organizing  and  subsequently  of  working  one  of  those  greatest 


6 

of  nil  the  credit  institutiona  in  Iho  world,  a,  London  hunk,  and  sec  if  wo 
cannot  Ihorohy  slicd  sonic  li<i:lit  iipon  llic  problem. 

The  stocU  sniiscribed  Cor  in  a  new  hank  in  London  is  paid  for  almost 
entirely  hy  means  of  checks  drawn  against  deposits  in  the  Bank  of  Eng- 
land, or  other  London  banks,  and  which  do  not  actnally  represent  money 
in  hand,  hnt  credits  on  the  hooks  of  these  bardvs.  The  operation,  then, 
is  but  the  mere  transfer  of  the  ownership  of  credits  from  individuals  or 
corporations  to  tlie  new  l)ank,  and  these  credits  usually  remain  with  the 
Dank  of  England,  while  they  continue  to  be  the  property  of  the  new 
bank.  Customers  now  come  to  the  new  bank  and  ask  loans  or  discounts 
on  stocks,  l)onds,  jjromissory  notes,  and  bills  of  exchange,  and  credits 
are  carried  to  their  respective  accounts  on  the  books  of  the  hank  and  are 
called  (h'pOfiils.  Some  j)arts  of  these  deposits  are  transferred  l)y  means 
of  checks  to  the  creditors  of  these  depositors,  and  of  them  some  may  re- 
main with  the  hank  as  deposits  to  the  credit  of  the  new  parties,  while 
others  are  taken  to  other  hanks  and  deposited  with  thorn.  But  a  small 
amount  is  drawn  in  notes  or  specie,  and  even  of  this  a  portion  soon  finds 
its  way  back  to  the  new  bank  or  goes  to  other  banks.  The  "loanable 
capital"  thus  loaned,  is,  hy  the  aid  of  chocks,  made  to  perform  the  same 
functions  as  circulating  notes  and  specie,  and  by  the  aid  of  the  London 
clearing  house  is  kept  revolving  round  in  a  circle  among  the  banks,  the 
balances  being  paid  not  hy  moans  of  money,  hut  simply  by  checks  dravrn 
ui)oii  the  Bank  of  England,  where  all  of  the  other  bank's  keep  their 
accounts.  Indeed,  the  deposits  from  day  to  day  received  from  the  pul)lic 
by  the  London  hanks  and  bankers  consist  of  little  else  than  the  checks 
which  transfer  the  ownership  of  deposits  already  held  by  the  various  city 
and  country  hanks,'''  the  original  sources  of  the  production  of  ichich 
deposits  are  loans. 

The  deposits  created  hy  the  new  bank,  as  long  as  they  arc  not  drawn  in 
either  notes  or  specie,  admit  of  new  loans  in  this  and  other  hanks,  as  much 
so  as  if  the  first  loan  had  not  been  made,  and  new  "loanable  capital"  is 
called  into  existence  and  still  further  loans  arc  made,  creating  new  deposits 

*  "To  show  how  very  small  an  amount  of  banking  deposits  aro  made  in  the 
form  of  money,  we  give  th«  following  statement,  made  by  Kir  .John  Lubbock, 
before  the  Statistical  Society  in  June,  1SG5,  in  which  lie  analyzed  a  sum  ot 
£19,000,000  paid  into  his  bank  by  customers  : — 

Clieoks  and  bills      .         .         .         .        T     £18,395,000  or  97  per  cent. 

Bank  of  England  notes   ....  408,000  \ 

Country  notes  .....  79,000  l      3  per  cent. 

Coin     ' 118,000  J 

From  which  statement  it  appears  that  only  tlu-ee  per  cent,  of  banking  depos- 
its are  paid  in  the  form  of  money,  that  is,  notes  and  coin  together,  and  a  little 
more  than  one-half  per  cent,  in  specie." — Patterson' s  Science  of  Finance,  p]).  5,  6; 
Editburgh,  18G8.  - 


T 

— these  latter  hclnrr  worlvod  round  in  the  same  vicious  circle  tlironpfii  tlic 
clearin<i^  liouso,  with  the  actual  payment  of  hut  a  small  amount  of  money. 
How  this  results  is  well  ilhistratcd  by  the  statement  of  The  London 
AND  County  Banking  Company,  December,  lU,  iST-1: — 

Thnt  institution  had  a  capital  of £1,200,000 

Ke.servo (;00,(iOO 


£1,800,000 

Its  loans  were  as  follows: — 

On  call £;"!,050,922 

Discountc'l  bills  and  atlvanoes  .....     14.110.4(15 

Draft-s  aocoptoil  ........       2,7^^0,005 


£19,044,302 

Besides  which,  it  held  fi^ovcrnmcnt  and  other  securities  and  real  estate 
to  the  amount  of  £2,500,547,  and  cash  (mostly  deposits  to  its  credit  in 
the  Bank  of  E-.gb.nd)  to  tlio  amount  of  £2,401,448— this  latter  item 
representing  almost  exactly  the  amount  of  its  capital,  reserve,  undivided 
profits,  and  subscriptions  to  new  shares,  or,  in  a  word,  the  whole  of  its 
worldly  ]iosscssions.  How  then  is  it  enabled  to  make  such  large 
loans,  or  to  hold  securities  and  other  property  to  such  an  amount  as 
£22,450,939,  seeing  that  in  addition  to  doing  and  having  these  things, 
it  holds  all  of  its  own  worldly  possessions  in  hand,  in  cash,  or  in  the 
Bank  of  England?  Wliy,  by  means  of  a  gradual  growth  of  debits  re- 
presenting loans,  which  give  rise  to  credits  called  deposits,  the  latter 
constituting  "loanable  capital,"  tlic  steady  "evolution"  of  which  is  ren- 
dered possil)lc  so  long  as  these  deposits  arc  not  demanded  in  notes  or 
specie,  but  are  transferred  by  means  of  cheeks  and  clearing-hou.ses.  With 
the  London  and  County  Banking  Company  these  credits  called  deposits 
had,  on  December  31,  1874,  reached  an  aggre{_-ate  of  £19,892,580.* 

*  Bank  loans  and  the  resulting  deposits  accumnlato  in  business  cnntres  in 
proportion  to  tlin  ability  ol'  tlioso  centres  to  work  bank  cretlit.s  throngli  checks 
and  clearing-lionses,  without  demanding  ci: dilating  noti-s  or  spoi;;o.  In  ^^lnall 
towns  doing  business  with  rural  populations  tliey  do  not  accuuiuiate  largely, 
because  a  demand  for  circulating  notes  or  specie,  almost  the  only  circulating 
mediums  there  used,  soon  follows  loans  and  draws  upon  the  actual  resources 
of  the  banks.  In  other  wonls,  these  rural  banks  bank  mainly  upon  their  own 
resources,  and  not  upon  their  credit,  as  city  banks  so  largi-ly  do.  In  France 
these  loans  and  deposits  do  not  accumulate  because  the  people  generally  use 
money  and  not  checks  in  their  business  affairs.  M.  Piiuud,  iManager  of  the 
Comptoir  (VEscomptc,  of  Paris,  testified  before  the  French  Cotruiissiou  of  In- 
quiry, 1S(35-(j8,  that  the  greatest  efforts  had  been  made  by  that  institution  to 
induce  French  merchants  and  shopkeepers  to  adopt  English  habits  iu  respect  to 
the  use  of  checks  and  the  keeping  of  bank  accounts,  but  iu  vain;  their  preju- 
dices were  invincible;  "it  was  no  use  reasoning  with  them,  tl.'oy  would  not  do 
it,  because  they  would  not."  The  private  deposits  in  tlie  Bank  of  France  and 
its  branches,  May  20,  1875,  were  but  $73,823,2(50,  while  the  deposits  iu  the 
banks  of  New  York  City,  June  f),  1875 — nearly  all  private — were  $2133,424,100. 
The  private  loans  and  discounts  of  the  Bank  of  France  and  its  branches,  May 


8 

« 

These  deblls  and  credits,  these  loans  nnd  deposits  are  well  nigh  vvith- 
ont  any  financial  base  whatever,  foi*  the  reason  that  the  base  upon  which 
they  are  snpposcd  to  vest  is  little  else  than  credits  (dei)()slts)  with  the 
Bank  of  Eiif^laiid,  which  themselves  only  rest  upon  the  same  specie  and 
loan  to  the  nation  (national  del)(.  due  the  bank),  u[)on  which  the  Hunk  of 
Eng'land  bases  its  own  operations,  re<:^ardlcss  of  those  of  tlio  London 
and  County  Bnnkin|^  Coniitnny,  and  the  other  I)anks  which  koep  their 
accounts  with  it.  Once  cancel  both  these  debits  and  credits,  use  the  one 
to  i)ay  llie  other,  and  the  great  volume  of  this  "slow  accumulation"  of 
"loana!)le  capital"  would  instantly  collapse  and  shrink  from  some 
£24,912,^81  to  about  £2,4(;],448!  Perform  the  same  process  with 
three  or  four  other  large  London  banks,  and  it  would  result  in  a  total 
colinpse  of  British  Ihiance,  trade,  commerce,  and  industry  I 

How  is  it  then,  that  a  country,  the  instrument  of  payment  of  which 
is  of  such  an  inflated  and  ticklish  natufe,  is  able  to  lend  so  much 
"money,"  so  much  "loanable  capital"  to  almost  the  whole  world  be- 
side ?  The  answer  is,  that  the  carrying  of  these  loans  is  rendered  pos- 
sible by  reason  of  this  system  of  bank  credit,  v.'hilc  bills  of  exchange 
drawn  against  merchandise  shipped  to  the  borrowing  or  other  countries, 
or  against  interest  due  on  former  loans,  prevent  the  shipment  of  money — 
the  latter  behujthe  actual  foDa  of  capital  ivliich  the  borroioing  couniry 
needs,  vo  country  having  j-Uenty  of  loMch,  ever  being  wider  the  necesHily 
ofbccominy  a  borrower.  Thus  does  the  rest  of  the  world  get  none  of  the 
thing  it  most  needs,  but  merely  goods,  for  which  it  does  not  then  pay  ; 
or  a  funding  of  the  interest  which  it  then  owes,  or  both  ;  the  individual 
consumers  of  the  goods  or  the  debtors  for  interest  paying,  however, 
while  the  borrowers  have  their  indebtedness  carried  by  and  through  the 
credits  in  favor  of  foreigners,  created  by  means  of  goods  then  or  pre- 

20,  1875,  were  but  $118,243,800,  while  those  of  the  banks  of  New  York  City  wore 
$281,401,100.  Onr  country,  being  one  of  vast  area  compared  with  its  popuha- 
tion,  cannot  bniUl  up  and  work  a  genera!  .'system  of  inlhited  bank  credit  like 
that  of  Great  Biilain,  and  nin;-t  tiierefore,  if  for  no  other  and  better  reason, 
have  a  full  voluuie  of  "  current  money  of  tlie  realm, "  as  Krance  has,  or  stagnate 
and  annually  waste  labor-power  worth  tliousaiuls  of  millions  of  dollars,  and 
at  tlie  same  time  be  dependent  iipon  foreigners  for  ''loanable  capital."  While 
on  May  1,  187-3,  tlib  National  Hanks  of  the  United  States  had — 

Capital $497,717,143 

Surplus  fund 131,404,008 

Undivided  profits .'jr),S49,959 


$(J84,971,710 

Their  loans  and  disconnts  were       ....     $904,574,114 

or  but  about  40  per  cent,  in  excess  of  the  net  resources  of  these  banks.  This, 
too,  was  in  .^pito  of  the  fact  of  the  inflation  of  the  l)anks  of  New  York  and  ether 
large  citii^s,  which  banks  are  included  in  this  return.     (Note — June  20,  1875.) 


9 

vionsly  piirohaKecl,  and  which  nre  soon  wholly  consnmGtl,  whilo  the  dcl)t 
for  them  veinains  a  ponnancnt  charge  upon  their  country  at  con) pound 
interest.  All  the  while  the  Lorrowing  country  amuses  itself  wilh  the 
idea  that  it  is  getting  money  for  the  reason  that  the  individual  liorrow- 
ers  of  these  credits  obtain  payment  in  bills  of  exchange  for  which  in 
their  own  country  they  get  money  or  baidi  credit;  while  at  the  same 
lime,  the  lending  country  could  not  stand  up  under  the  eflects  of  parting 
with  so  many  goods  without  payment,  did  not  bank  credit  at  home  sup- 
ply an  available  substitute  for  it. 

The  evidence  of  the  inability  of  Great  Britain  to  loan  actual  money 
in  any  great  amount,  to  foreign  countries,  is  found  in  the  fact  that  the 
transfer  of  the  $15,500,000  indemnity  under  the  Geneva  award,  which 
she  had  to  pay  to  our  government,  she,  for  prudential  reasons,  effected 
gradually  by  means  of  bills  of  exchange  and  securities  instead  of  money, 
the  thing  which  was  to  be  paid;  and  the  further  fact  that  the  Bank 
of  England  served  notice  upon  Mr.  Boutwell  that  in  case  he  attempted 
to  draw  specie  from  London  for  certain  loans  there  negotiated,  that 
institution  would  step  in  and  break  up  his  combinations  and  contracts; 
in  other  words,  cut  off  the  supply  of  loans — the  "  loanable  capital" 
— from  the  banks  and  bankers  who  were  iibout  to  buy  the  bonds,  be- 
cause these  bank  loans  were  not  to  be  allowed  to  float  round  among 
the  London  banks  in  the  form  of  deposits,  but  were  to  be  drawn  in  specie 
for  shipment.*  The  lesson  to  be  learned  from  these  facts  is,  that  Great 
Britain  with  all  her  boasted  wealth  and  power  never  willingly  gives  up 
that  most  royal  of  all  things,  money,  that  species  of  capital  which  com- 
mands on  the  instant,  indeed  calls  into  being,  almost  all  other  forms  of 
capital;  without  a  struggle  and  the  attempt  or  desire  to  force  off  in- 
stead something  which  she  values  less.       • 

Seeing  now,  as  we  do,  what  is  the  nature  of  the  great  bulk  of  the 
instrument  of  payment  in  Great  Britain,  may  we  not  ask,  why  our  legal 
tender  note,  our  democratic  currency,  backed  as  it  is  by  the  whole  credit 
and  all  of  the  resources  of  a  great  and  wealthy  country,  and  which  freely 

*  "When  the  negotiations  were  going  on  in  London  for  thp  sale  of  the  largest 
araount  of  Uiiitod  Blates  bonds  that  have  ever  bcou  f^olil  there  at  one  tinio,  it 
was  foreseen  by  the  Bank  of  England  that  a  quantity  of  coin  would  aijcunuilate 
as  the  proceeds  of  these  bonds  to  the  credit  of  the  government  of  the  United 
States.  As  a  matter  of  fact,  there  was  an  accumulation  of  about  $21,000,0(.!0. 
Tiie  Bank  of  England,  foreseeing  that  there  would  be  an  acouuiulatiou  of  coin 
to  the  credit  of  the  Unitod  States  which  uiiglit  be  taken  away  bodily  in  specie, 
gave  notice  to  the  officers  of  the  Treasury  Department  of  the  United  States  that 
tlie  power  of  that  institution  would  bo  arrayed  against  the  whole  proeeeding 
unless  we  gave  a  pledge  that  the  coin  should  not  be  removed,  and  that  we  would 
reinvest  it  in  the  bonds  of  the  United  States  as  they  were  oUbred  in  the  markets 
of  Loudon.  We  were  compelled  to  do  it." — Spcjch  of  Hon.  G.  S.  Boutwell  in 
U.  S.  iJenatc,  January  22,  ISl-i. 


10 

elrculates  among  tlio  whole  people,  is  not  quite  as  good  as  it?  Why  is 
it  not  better,  since  it  has  at  once  this  broad  and  firm  foundation,  and  is 
not  open  to  the  charge  of  being  an  instrument  for  centralizing  jjowcr  in 
the  hands  of  a  few,  who  can  manufacture,  borrow,  inflate,  contract,  and 
manipulate  such  a  monopolist  credit  currency  as  that  of  Great  Britain? 
It  is  indeed  better,  and  is  as  truly  capital,  and  when  once  it  is  made  at 
all  times  interconvertible,  at  the  pleasure  of  the  holder,  with  U.  S.  bonds 
bearing  a  fixed  rate  of  interest,  not  exceeding  3.G5  per  cent.,  it  will  be  the 
most  nearly  jierfect  in  the  world.  Then  will  its  volume  lie  neither  more  nor 
less  than  h  demanded  by  the  industry,  commerce,  and  trade  of  the  ichole 
people,  and  not  only  will  these  people,  but  the  State,  be  saved  from  im- 
mense taxation,  in  the  form  of  interest  now  paid  to  a  few  domestic 
manufacturers  of  credit,  but  we  shall  l)e  emancipated  from  our  long  and 
disastrous  dependence  upon  Great  Britain  for  credit,  "  loanable  capital" 
which  seldom  comes  to  the  country  in  any  form  but  that  of  merchandise 
or  extenaed  interest  or  dividends.  Our  own  national  and  full-volumed 
money  circulating  throughout  the  country,  and  setting  an  unemployed 
people  to  work,  will  gather  up,  as  a  saving  fund,  billions  of  millions  of 
minutes,  which  would  otherwise  be  lost,  and  without  a  single  stagnant 
product,  or  an  unoccupied  arm,  we  shall  soon  be  enabled  to  produce  in 
one  year,  in  addition  to  our  present  product,  more  merchandise  than 
all  that  we  have  borrowed  from  Great  Britain  within  half  a  century. 
An  "  act  of  legislation"  which  shall  bring  such  fruits  will  indeed  bo 
one  which  will  "create"  both  capital  and  wealth,  and  will  shower  bless- 
ings upon  43,000,000  of  human  Abeings,  drive  pauperism  from  out  che 
land,  by  leading  to  a  more  eqtiitable  distribution  of  God's  gifts  to  man, 
and  result  in  a  higher,  a  truer,  and  a  more  enduring  civilization. 

Will  then  Massachusetts,  *nd  New  England  generally,  still  continue  to 
stand  in  the  way  of  at  least  a  trial  of  such  a  law  ?  If  they  do  they 
will  assume  an  immense,  a  dreadful  responsibility,  which  sooner  or  later 
they  will  be  forced  to  acknowledge,  when  surrounded  by  yet  still  greater 
ruin,  they  are  obliged  to  try  that  law,  and  trying  it,  they  realize  the 
beneficence  of  its  workings  amongst  the  people,  and  the  independ'^  ^ce 
and  power  it  confers  upon  the  State,  an  independence  the  celebration 
of  which  will  in  no  sense  be  a  mockery,  as  must  be  that  of  any  other, 
while  our  government  is  at  the  mercy  of  foreign  credit-mongers. 

HENRY  CAREY  BAIRD. 

Tkemokt  House,  Boston,  March  25, 1875. 


BULLIONISM  AND  BANK  INFLATION. 

IIoiv  they  travel  hand  in  hand  tocjcther. 

TJie  way  the  English  '■''pay  debts  without  moneys" 

* 

From  the  PiiiLADELPniA  IxQUinER,  August  4,  1875. 

To  the  Editor  of  The  Philadelphia  Inquirer — 

My  friend,  Judge  Kelley,  having  in  a  recent  letter  given  some  rather 
startling  Bgures  regarding  the  London  and  County  Banking  Company, 
of  London,  exliibiting  the  extent  to  which  that  institution  carries  the 
system  of  inflation  of  bank  credits,  I  desire  to  place  before  your  readers 
the  evidence  that  those  figures  give  but  little  more  than  a  fair  average 
specimen  of  the  state  of  the  London  banks  generally.  To  that  end  I 
have  compiled  from  the  supplement  to  the  London  Economist,  May  15, 
1875,  the  following:— 


(11) 


12 


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13 

From  the  fore,Q;oing  fifjnvcs  it  would  seem  that  in  London,  nt  Icnst, 
they  liavc  learned  how  "  to  pay  dol)ts  without  moneys,"  a  lesson  that 
Andrew  Yarranton,  the  father  of  English  ])oliticnl  economy,  desired  to 
teach  to  his  countrymen  at  as  early  a  date  as  1077  ;  to-day  nearly  idl 
of  the  liirgo  debts  in  that  city  ljoin^i>:  paid  l)y  mere  bank  credits,  which  have 
obsolnrely  little  or  no  monetary  fonndtttion  whatever. 

WiUi  a  cai)itid  and  reserve  or  surplus  of  £12,753,059,  of  which  nearly 
the  whole,  or  £12,545,003,  is  invested  in  public  securities,  real  estate, 
etc.,  these  institutions  have  £?raduallj  accumulated  n  line  of  loans  of 
£100,504,385,  resultinj?  in  credits  to  the  borrowers  or  their  assigns, 
called  deposits,  almost  wholly  the  out-growth  of  the  ie  loans,  of 
£100,005,085.  So  long  as  there  is  no  extraordinary  de.nand  for  pay- 
ment outside  of  it,  these  deposits  are  readily  kept  afloat  through  and  l)y 
means  of  the  clearing-house. 

These  oeposits,  which  are  worked  through  checks,  become  an  instnunent 
of  payment  as  i)otent  as  would  be  the  addition  of  £100,000,000  to  the 
money  of  Great  Britain.  In  other  words,  they  are  in  their  eil'eet  equal 
to  the  doubling  of  the  gold  circulation  of  the  realm,  which  is  now  esti- 
mated by  the  highest  authorities  at  £  100,000,000,  but  with  this  difference, 
that  the  deposits  being  worked  by  the  few,  they  become  an  instrument 
for  the  aggrandizement  of  those  few  and  for  the  enslavement  of  the 
many  These  credit-mongers  and  those  in  our  own  country  understand 
this  full  well,  and  when  ihey  cry  out  against  "inflation"  they  pretend  to 
be  oi)posed  to  the  very  thing  they  are  in  favor  of.  What  they  are  really 
opposed  to,  is  having  such  a  normal  volume  of  "current  money  of  the 
realm"  as  will  obviate  all  necessity  for  that  immense  volume  of  bank 
credit,  through  the  use  of  .which  they  annually  levy  taxes  upon  the 
public  to  the  amount  of  Inuidreds  of  millions  of  dollars. 

The  "cash"  £14, 580, 360  held  .by  the  London  banks  above  named, 
small  as  it  is  compared  with  their  liabilities  payable  on  demand,  consists 
largely  of  mere  deposits  (credits)  with  the  Bank  of  England,  thus  con- 
stituting the  latter  the  almost  exclusive  base  upon  which  rests  this 
towering  superstructure  of  bank  credit.  The  Economid  has  recently 
said  "  t'le  reserve  of  the  Baidv  of  England  is  the  only  reserve  the  nation 
possesses,  and  has  not  been  increased  in  jiroportion  to  the  very  great 
amount  of  the  demands  to  which  the  bank  is  now  ex[)Osed,  as  compared 
to  those  it  had  formerly  to  meet."  The  weight  of  these  "demands" 
may  be  inferred  from  the  fact  that  during  October  and  November,  1874, 
the  deficiency  of  the  baidc  note  reserve  of  the  Baid<  of  England,  as  com- 
pared with  the  mere  bankers'  balances  in  its  hands,  ranged  from  £734,000 
to  £2,478,000.  The  reason  why  the  burden  has  so  increased,  is  found 
in  the  fact  that,  while  since  1844,  th.e  trade  of  Great  Britain  has  increased 
many  fold,  the  circulation  of  coin  has  increased  but  little,  and  that  of 
notes  not  issued  on  coin  or  bullion  actually  in  hand,  not  at  all.  Hence 
the  growing  trade  has  annually  to  call  u|)on  baidis  for  an  increasing 


14 

volume  of  tlieir  inferior  substitute,  credit,  cireulatiiij^  tlirougli  the  Lou- 
don and  otlicr  elcariug-liouses.* 

Judge  Keliey  and  tlie  gatliering  hosts  of  wliich  he  is  now  tlio  nckuowl- 
cdgcd  leader,  only  demand  that  tiie  people  of  this  country  shall  no 
longer  be  i)hu.'ed  under  the  tyranny  of  such  legislation  as  limits  the 
money  of  the  country  below  the  actual  wants  of  business,  to  be  followed 
by  the  creation  of  an  inflated,  expensive,  and  unstable  bank  credit  sys- 
tem like  that  of  England.  To  that  end,  tliey  advocate  a  full  volumed 
currency,  at  all  times  interconvertible  with  United  States  bonds  bearing 
a  fixed  rate  of  interest,  not  exceeding  3.65  per  cent.  Siich  a  currency 
will  in  time  cause  nearly  all  business  to  be  done  for  cash  as  in  1804-5, 
and  will  save  us  from  those  desolating  crises  which,  sooner  or  later,  in 
Great  Britain,  here,  or  elsewhere,  follow  an  inflated  credit  sul)stitute  for 
a  sufficient  volume  of  "current  money  of  the  realm. "f 

IIENIIY  CAREY  BAIRD. 

PiiiiiADELi'HiA,  August  2,  1875. 

*  lu  1844  tlio  deposits  in  the  following  banks  were  : — 

Loudon  and  County £1,231,000 

London  Joint  Stock 2,24.),000 

Loudon  and  Westminster     ....        2,(;7iJ,(H)0 
Uuiou I,r)i)],0u0 

'£lJ■i■^xm 


In  1874  they  were  :  — 

London  and  County i:iO,892,.'')S6 

London  Joint  Htock     .....  20,527,270 

London  and  Westminster  ....  o0,01 5,11)4 

Uuiou 14,122,111 

i:S4,r;57,lG7 

t  The  ticklish  nature  of  the  British  system  of  inflated  bank  credit  is  well 
shown  by  the  following  from  The  Ecvnoniint,  the  highest  English  authority  on 
finance,  July  10,  lb7'>  :  — 

"There  can  be  little  doubt  that  we  have  very  narrowly  escaped  a  panic. 
The  great  mercantile  disasters  which  have  followed  so  rapidly  one  after  another, 
the  failure  of  two  bill  brokers,  and  above  all,  the  very  serious  losses  avowed  by 
our  joint  stock  banks,  and  especially  by  the  London  and  Westniinsti'r  (the  one 
whose  business  is  hvrtrest,  and  whose  repute  greatest)  would,  in  former  times, 
have  nearly  or  quite  slwikeii  the  fouutbation  of  credit.  *'J'ha  mercantile  disasters 
which  primarily  caused  the  panic  of  IS.')?,  were  certainly  not  much  greater;  per- 
haps they  were  even  less.  The  main  cause  to  which  we  owe  our  escape  is  the 
increase  of  the  cash  reserve  in  the  banking  department  of  the  Bank  of  luigland. 
The  panic  of  iS57  found  the  bank  with  a  reserve  of  X2,70U,!K)O  ;  the  late  events 
found  it  with  one  of  £10,:]44,000,  which  luid  increased  to  £12,38r/,000  befoie 
the  second  group  of  failures  came.  And  it  is  to  this  great  improvement  tliat 
we  owe  our  present  safety.  As  was  natural,  the  great  increase  of  the  fund 
which  wo  hold  to  give  confidence  in  times  of  alarm,  liul  the  effect  of  creating 
that  confidence.  Eveu  as  it  is,  we,  on  a  former  occasion,  showed  that  we  have 
but  narrowly  escaped.  If  a  war  had  broken  out  between  France  and  Germany 
just  belore  these  events  when  it  was  so  much  feared  eveu  by  many  wiio  ought 
to  know,  and  if,  as  is  most  likely,  like  the  previous  similar  war  of  1870,  it  had 
caused  Xl), 000, 000  to  be  taken  liom  our  banking  reserve  for  the  Continent,  these 
great  calami'ies  would  have  found  the  bank  with  a  probably  insufficieut  reserve 
instead  of  a  Bulficient  one.  But,  n»jvertheless,  in  comparison  with  such  times  as 
1857,  much  praise  is  justly  duo  to  .the  present  po'icy  of  the  Hank.  Though  it 
did  not  provide  for  the  contingency,  which  was  near  occu'rin  it  did  provide 
for  the  coutiugeuoy  which  did  hajipen,  and  we  all  have  to  be  grateful  to  It." 


VALllABLE  PRACTICAL  AND  SCIENTIFIC  BOOKS. 


AMATEUR    HIECHANICS'    WORKSHOP  — 

A  Treatise  containing  Plain  and  Concise 
Directions  for  tlio  Mani])uliitl()n  of  Wood 
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Brazing:,  tiohloriii;;,  ami  Carpentry.  ]5y 
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Third  edition.     Illustrated.     8vo.     .$;M)0 

ASHTON.-The  Theory  and  Practice  of  the 

Art  of  Dpsiu'ninp^  Fancy  Cotton  and  Woollen 
Cloths  I'rom  yiimple.  Giving  full  instruc- 
tions for  reducing  drafts,  as  well  as  the 
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